The iconic Alitalia logo has for five decades been an integral part of the Made in Italy brand. Alitalia was considered the jewel in the crown of public investment and went a long way in helping Italy export its excellent products to the rest of the world. But now, this national carrier has been grounded. Its place was taken by ITA (Italia Trasporti Aereo), a new state-owned airline that took off on October 15.
The European airlines’ industry faces formidable challenges as legacy airlines fight for market share with nimble low-cost airlines. Governments keep defending their national carriers. Still the EU, conscious of the overcapacity in the market, gets stricter on preventing state aid from flowing in the coffers of inefficient airlines.
The Italian taxpayers poured €13 billion between 1974 to today to keep Alitalia flying. Successive governments believed that this was a cost worth paying as they never imagined that brand Italy could be successful without the support of the national carrier. Aviation analysts are asking whether ITA is just a clone of Alitalia or a more innovative airline that is likely to overcome the structural weakness of the old carrier.
ITA bought the Alitalia brand for €90 million, a bargain compared to the initial pricing of €290 million. However, it will not use this brand as ITA only wanted to prevent other airlines like Ryanair from taking over the brand that many travellers still appreciate. But the critical question that many are asking is whether ITA, with its slimmed-down business model, can compete with low-cost airlines that are increasingly dominating the short- and medium-haul European market.
ITA starts life with just 52 planes and less than 3,000 workers. By 2025 it forecasts that it will increase its fleet to 78 with a workforce that will at best number 5,700 employees. Alitalia’s last headcount amounted to 10,400 workers.
The negotiations with the European Commission were characterised by some harsh conditions imposed on ITA. ITA has to compete in a tendering process to hold on to the ground handling and maintenance activities which no longer form part of the new airline’s operations. The airlines’ unions are furious about the conditions imposed on workers by ITA. The new airline has slimmed down the workforce and offered its employees a significantly worse contract than under Alitalia.
Aviation analysts are asking whether ITA is just a clone of Alitalia or a more innovative airline that is likely to overcome the structural weakness of the old carrier
Not surprisingly, the pilots union is the most vociferous in criticising ITA’s business plan. Ivan Viglietti, head of the pilots section of the air transport union Uiltrasporti, argues: “We have not been in the least summoned or consulted by the government which instead went to deal in Europe on an industrial level, a plan that we know only through the newspapers and press releases of the institutions. Unfortunately, everything we feared emerges from the plan approved for ITA”.
Viglietti fears that ITA will not have the critical mass of operations that it needs to be viable in the context of the tough competition coming, especially from low-cost airlines that keep increasing their market share.
ITA CEO Fabio Lazzerini is aware of the effect of reduced operations. He believes it is a “necessity” for ITA to strike a deal with the state railways Ferrovie dello Stato to get a competitive advantage over low-cost airlines. Italian high-speed rail has helped undermine Alitalia’s business model. So ITA aims to partner with rail operators for combined rail-and-fly tickets – a move made by several former flag carriers as they look to offer something different to no-frills rivals.
The success of ITA’s new business model will significantly depend on its ability to join an alliance. Lazzerini considers this as “fundamental” to his company’s future and argues: “The world of airlines is made up of alliances. It is difficult to be alone”.
Italian taxpayers are wondering what the new venture will cost them. ITA starts life with €1.35 billion of new money injected by the Italian government. According to Corriere della Sera, ITA is expected to lose €1.9 million a day in its start-up phase. ITA’s business plan projects a profit of €100 million only in 2024.
Political obstacles will be unavoidable for ITA as they have been for other struggling national carriers. Airline alliances would be interested in taking over ITA, which still holds the Italian market. But will the Italian government be ready to sell off a majority stake in its “new” jewel in the portfolio of public investments?
The ghosts of Alitalia’s multiple unsuccessful restructuring efforts might still haunt the new ITA.